The dollars and sense of severance

Terminating an individual’s employment can be a minefield. There is the human element involved in telling an employee and dealing with their reaction.

There are also legal requirements under employment standards law. Payroll departments play an important role in helping organizations comply. Since payroll processes severance pay, it is important they understand the rules for calculating, paying and reporting it.

Severance pay is different from termination pay (or wages in lieu of notice). Severance pay is paid when employees retire to recognize their service or for the loss of their job. Termination pay is paid to an employee who does not receive the amount of written notice required. It is usually equal to the employee’s wages for a regular workweek for the number of weeks of notice to which the employee is entitled.